KEY POINTS:
A stunning drop in the number of people in jobs has strengthened the case for an early cut to official interest rates.
Statistics New Zealand (SNZ) data today showed a fall of 29,000, or 1.3 per cent, in seasonally adjusted employment during the March quarter to 2.14 million.
Over the year, employment was down by 5000, or 0.2 per cent.
In the wake of the jobs figures, analysts were expecting the Reserve Bank to aggressively start cutting the Official Cash Rate (OCR) from September.
In a Reuters poll of 15 forecasters, the median expectation was that the Reserve Bank would cut by a quarter of a percentage point to 8 per cent in September, falling to 7.5 per cent by the end of December.
Eight forecasters, most of whom had been picking a rate cut no sooner than the fourth quarter or early next year, brought forward the date they expect the first cut after the jobs data.
As recently as late April, Reserve Bank Governor Alan Bollard had said the OCR would need to remain at 8.25 per cent "for a time yet", but at that stage he was also talking of the labour market as "still strong".
ASB Bank chief economist Nick Tuffley described today's jobs figures as "very grim", with the labour market starting to deteriorate swifter than expected.
He did point out that labour market data could be "very noisy" with the March quarter figures being affected by Easter and following a strong December quarter.
"But the risk is that, rather than just an unusually large pullback from a strong month, it is very reflective of the state of the economy," he said.
"The extreme weakness is coming through in areas you would expect to see it. That suggests there was a marked lurch in the economy in the early parts of 2008."
While there was now a greater chance of the Reserve Bank cutting earlier, he expected Bollard would want to wait to ascertain the economy was doing more than just going through a patch.
He expected the Reserve Bank to hold off until September before cutting, but to start with a half a percentage point cut rather than just a quarter.
ANZ bank said it remained comfortable sticking with its view of an interest rate easing in September, but a move in June was a "non-trivial" risk.
While inflation pressures remained intense, "significant" risks to growth noted by the Reserve Bank last month were starting to become the central case, ANZ said.
Westpac chief economist Brendan O'Donovan described today's job figures ``an absolute shocker'.
He said the figures were ``extraordinarily weak'.
``It dramatically pulls forward the prospects of an interest rate cut, the market pricing will go towards pricing in a cut for July,' O'Donovan said.
``With employment normally being a lagging indicator, for a correction of this magnitude so early in this economic downturn augers poorly for household sector prospects.'
Releasing the figures, SNZ said the decline in employment came after a period of increasing numbers since 1999, with the quarterly fall the largest in percentage terms in 19 years.
Despite the size of the fall in jobs, the increase in the unemployment rate was modest, rising to 3.6 per cent from the December quarter figure of 3.4 per cent, the lowest since the Household Labour Force Survey started in 1986.
The unemployment rate was kept down by people leaving the labour force, which declined by a seasonally adjusted 24,000, or 1.1 per cent to 2.22m.
The number of people not in the labour force rose 35,000, or 3.4 per cent to 1.06m.
The labour force participation rate dropped by 0.9 percentage points to a three-year low of 67.7 per cent.
SNZ said the fall in employment was led by a 22,000 drop in female full time employment.
The New Zealand performance contrasted with that of Australia where the number of people with jobs rose by 25,400 or 0.2 per cent in April.
Despite that, the Australian unemployment rate rose last month to 4.2 per cent from 4.1 per cent in March, due to rapid growth in the labour market.
- NZPA
